China is faltering: Its economic model may be in decline

China, long seen as the unshakable engine of the world economy, is today going through a major crisis. Years of double-digit growth that symbolized its rapid rise have given way to a period of deep economic uncertainty. The fragility of its economic model, based mainly on investment and exports, is becoming more and more visible. Issues such as the rise in public and private debt, the collapse of the real estate sector and the appearance of the specter of deflation are accentuating internal economic tensions. These dysfunctions raise an essential question: after decades of development often described as miraculous, can the Middle Kingdom still sustain its role as a pillar of global growth?

An economy under pressure

China, once seen as a model of economic success, is now facing a slowdown that is triggering serious concerns. Numerous recent statistics indicate a particularly marked stagnation in strategic sectors, notably that of real estate. The bankruptcy of giants like Evergrande reflects the fragility of an economic system that, for years, relied on an excessive accumulation of debt to fuel its growth. This structural imbalance is accompanied by insufficient domestic demand, the result of economic policies focused on supply and investment to the detriment of consumption.

At the same time, external factors aggravate these difficulties. The decline in trade, amplified by increased geopolitical tensions, is reducing opportunities for Chinese exports. Demographically, the accelerated aging of the population puts additional pressure on the workforce and slows down economic dynamics. Despite significant efforts, such as recovery plans and looser monetary policies, the Chinese authorities are struggling to restore the confidence of households and investors. The economic model, long praised for its resilience, now appears to be lacking momentum, raising doubts about its ability to bounce back sustainably.

The specter of deflation and its consequences

In addition to its internal economic difficulties, China finds itself facing the growing threat of deflation. This phenomenon, marked by a generalized drop in prices, risks producing profoundly negative effects on an already weakened economy. The massive debt of households and businesses, which is reaching record levels, accentuates this vulnerability. Patrick Artus, economic advisor to Ossiam and member of the circle of economists, declared that “deflation, if it sets in, would paralyze consumption and permanently compromise economic recovery”. These comments, made during his speech on the Ecorama program on December 27, shed more light on the scale of the challenge facing China.

Faced with this increasingly critical situation, the authorities have implemented various measures, including increasing public spending and easing credit conditions. However, these initiatives could prove insufficient to effectively counter the deflationary spiral. Public debt, already very high, limits room for maneuver, while the growing mistrust of foreign investors reflects a loss of confidence on an international scale. Thus, the repercussions of these difficulties extend beyond China. They also affect the global economy, notably through the disruption of supply chains and the reduction in demand for raw materials. These side effects are likely to weigh heavily on overall growth prospects, further heightening the urgency of finding viable solutions.

China's economic future rests on its ability to profoundly transform its development model. To overcome its structural weaknesses, the country will need to place greater priority on stimulating domestic consumption and encouraging innovation. Such a transition will require strong political will and careful strategic planning. If these reforms are not implemented quickly, the repercussions could be considerable, for the Chinese economy, but also for the entire world economy, which remains largely dependent on the dynamism of the Middle Kingdom.